Middle-aged children helping to support parents or other elderly loved ones often find those costs to be extensive. You can reduce the effective cost if you’re able to claim one or both of your parents as dependents. Each dependency exemption you can claim provides a $3,200 deduction in 2005, up from $3,100 in 2004.
Certain tests must be met in order for you to claim a parent as a dependent.
- Income: Your parent’s income can’t exceed the ependency exemption amount: $3,200 in 2005. This amount refers to taxable income. For low-income parents, Social Security benefits aren’t taxable so this won’t be a problem.
- Support: You must provide over half of a parent’s support during the year. If your parent lives with you, you can put a fair rental value on the housing you provide, as well as the food, medicine, transportation, etc., that you pay for.
Tax-exempt interest doesn’t count, either, so you might want to switch your parent’s bank accounts to tax-exempt bonds or funds.
If your parent does not live with you, money you pay towards rent or other housing costs can be included in your share of the support.
You should keep track of this calculation throughout the year and make sure you wind up paying at least 51 percent Urge your parent to defer year-end spending of personal funds if it’s a close call.
